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Franchises - Breaking the rules but not the agreement |
The Franchising Code is a mandatory industry code governing the conduct of franchisees and franchisors from before the entering of a franchise agreement until its termination. It is part of the Trade Practices Act. |
Recently, the High Court examined some controversy about the Franchising Code. It held that a franchisor breaching the code did not automatically destroy the franchise agreement. |
The court considered that the Trade Practices Act and the code are intended to improve franchisor/franchisee practices, protect franchisees who often have less bargaining power or knowledge than their franchisor, and reduce legal actions. |
While it held that noncompliance with the compulsory industry code was a breach of the Act, it found that this did not necessarily make a franchise agreement void. |
However, the court stated that franchisors should be mindful that in some cases noncompliance could be "such as to warrant the court striking a contract down on the application of a franchisee".
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Where a franchisor has not complied with the code and the Act, a franchisee is permitted to seek remedies under the Act. The most helpful include compensation for loss or damage experienced by the franchisee as a result of the franchisor's non-compliance, changing the terms of the franchise agreement, and termination of an agreement. |
It is unlikely that the courts would set aside a franchise agreement on application by the franchisor following breach of the code. Further, if a franchisee applied, the breach would have to be so detrimental that none of the remedies listed above were sufficient for the franchisee. |
